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Strategy for the Ministry of Power

By K Gnanadesikan

Himangshu Shekar Das

1. Vision Statement of the Ministry

Quality power for all in a sustainable manner.

2. Mission Statement of the Ministry

Achieve the vision by providing an enabling policy environment for

production of power through various sources of energy at internationally

competitive prices in an environmentally sustainable manner, supply of quality

power to all consumers and provision of access to electricity to all households inthe country especially in the rural areas.

3. Objectives

1. Production of electricity to meet the demand from all categories ofconsumers in full without any time lag keeping pace with the growth of the

Indian Economy.

2. Production of electricity in an optimal manner from various sources ofenergy namely hydro, coal based thermal power, Natural Gas and LNG

based thermal power, Nuclear power and renewable sources of energy

namely wind, cogeneration, biomass and solar energy.

3. Policy framework to produce coal based thermal power in consonance withthe voluntary commitments made by the Govt. of India to reduce carbon

dioxide emission by 20-25% below 2005 levels by 2020.

4. Ensuring fuel security namely availability of domestic coal, imported coal,natural gas and imported LNG on a long term basis at internationally

competitive prices.

5. Ensuring creation of matching transmission, subtransmission anddistribution infrastructure keeping pace with creation of capacity addition in

generation.

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2. Large number of rural habitations in the country do not have access toelectricity.

3. Even in habitations having access to electricity all households have not beenelectrified.

4. The sector is suffering from unsustainable financial losses. The loss makingdistribution sector has made the viability of the entire value chain namely

generation, transmission and trading a big question mark.

5. Project execution is marked by delays and roughly only 50% of the targetedcapacity is added in almost every plan period.

6. Hydroelectric power sector is affected by procedural hurdles and time delays inobtaining environmental clearances.

7. Coal based thermal power generation has several areas of concern. First andforemost of them is the inadequate availability of long term domestic coal

linkages. This requires working closely with the Ministry of Coal and working

out an appropriate strategy for domestic coal linkage for power sector.

Secondly rising requirement of imported coal has strategic implications in

terms of energy security for the country. In addition, the high cost of importedcoal has also implications for the competitiveness of produced power.

8. Indias international commitment to reduction of carbon emissions hassignificant implications to coal based thermal power generation. This requires

to be resolved in operational terms.

9. In view of the problem associated with coal based thermal power generationstated above, natural gas based power generation continues to be a major

source of clean power. However adequate availability of Indigenous natural

gas continues to be a matter of concern. In addition pricing of indigenous gas

has considerable implications for the price of gas based power.

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10.Liquefied Natural Gas (LNG) continues to be a costly source of energy forproduction of electricity. Long term LNG contracts at competitive prices need

to be ensured.

11.Nuclear power currently accounts for a very small share of the overallproduction. This needs to be stepped up considerably in the next 10 years.

Long gestation of these projects is another area of concern.

12.Capacity addition in generation is not synchronously matched bycorresponding inter and intra transmission infrastructure. There are

bottlenecks term of right of way and inadequate number of vendors with the

required capability. These need to be paid close attention.

13.The most critical issue affecting and eroding the viability of the entire sector isthe huge aggregate transmission and commercial losses due to high theft and

technical losses.

14.Currently the country has only one major supplier of generation equipmentnamely BHEL. Therefore, there has been delay in commissioning of generation

projects. Therefore both public and private sector generation projects are

forced to order imported generation equipments. There is a need for

augmenting the generation equipment manufacturing capacity in the country.

15.While a good beginning has been made in term of energy conservation andenergy efficiency measures, much more needs to be done. While industries

have been in the forefront in energy efficiency measures purely as a cost

reduction and competitive strategy, domestic household sector is largely

untouched. Replacement of incandescent bulbs by Compact Fluorescent Lamp

(CFL) in a time bound manner has become a top priority. Energy efficient

buildings and lighting systems need to be promoted on a large scale.

Key stakesholders:

The key stakesholders are listed below.

1. Ministry of Power GoI (MOP)2. Ministry of Coal GoI

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3. Ministry of Petroleum and Natural Gas, GoI4. Ministry of Railways GoI5. Ministry of Shipping GoI6. Dept. of Atomic energy GoI7. Ministry of Non- conventional energy sources.8. Ministry of Environment and Forests9. State Governments10. Central Electricity Regulatory Commission (CERC)/ Appellate Tribunal11. State Electricity Regulatory Commissions (SERC)12. Generation utilities13. Power grid/Central Transmission utility14. State Transmission Utilities15. Distribution companies16. various categories of consumers and bodies representing them17. Union Planning Commission18. Financial Institutions19.

BHEL and other equipment suppliers

20. Bureau of Energy EfficiencySWOT analysis

Strengths Weaknesses

1. Regulatory and policy framework already in

place

1. Unsustainable losses of

distribution companies

2. Big industrial houses and private sector

investors having appetite for investment in the

entire value chain of the power sector

2. High AT&C losses

3. Availability of skilled manpower covering 3. Free or highly subsidised

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the entire spectrum of activities in the sector power for Agriculture.

4. Indigenous and abundant availability of

coal, thorium and sunlight

4. Not too healthy finances of

state governments constraining

timely and adequate release of

subsidies to DISCOMS.

Opportunities Threats

1) Change in nuclear landscape 1) Continuing poor financial health of

distribution companies

2) Lack of political will to address tariff issues

in general and agriculture in particular.

2) Economy growing at a fast pace 3) Risk of fuel security looming large

3) Availability of cost effective

latest technology including IT

enabled systems across the value

chain

4) Constraints imposed by climate change

obligation

6. Outline of the Strategy:

1. Privatisation of Urban Distribution: Indian economy has been growing at8% plus. The elasticity of electricity to economic growth rate is aroundone. Hence electricity in terms of energy units also need to grow at that

pace. Due to high AT & C losses, uneconomic tariffs and delay in and

inadequate release of subsidy by State Governments the entire sector is

in deep financial trouble. As long as retail distribution of electricity is in

the hands of distribution companies owned by State Governments, there

is no future for this sector and the writing is on the wall. Therefore

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privatization of distribution appears to be the only meaningful strategy

for ensuring viability of the sector. Once this is done, rest of the

problems are manageable and can be addressed relatively easily. To start

with, privatization of urban areas with a population of one million and

above can be taken up. The lessons of privatization of Delhi can be drawn

upon.

2. Provision of choice by separation of wire and supply: We may also needto provide a choice of distribution companies, at least two (more than

one) to the domestic and commercial consumers (Open access to

industrial consumer above 1 MW is already available). We may also think

of separation of supply and wire. This means that eventhough last mile

connectivity is provided by one DISCOM, the consumer should have the

choice of becoming customer of another DISCOM. Once privatization of

urban circles is achieved; it may be left to State Governments to privatize

rural circles or continue to run them in public sector.

3. Make rural distribution reduce losses: In rural circles with high AT & Closses especially low collection, franchisee model may also be tried.

Multiyear tariff setting by SERCS will also reduce price tariff uncertainties

to DISCOMS as well as consumers.

4. Ringfencing rural discoms from losses on account of free power/highlysubsidized power to agriculture: Provision of free or highly subsidized

power to agriculturists has eroded the viability of the entire distributionsector also leading to high levels of cross subsidy. This has reduced the

competitiveness of Indian Industry. Therefore, State Governments should

pay the difference between the cost to serve and the tariff upfront to

DISCOMS rather than making industrial consumers bear a substantial

part of this cost of agricultural power by way of cross subsidy. State

Governments may also be advised to earmark energy equivalent to their

own hydel production for supply to agricultural sector.

5. Deepen open access: Open access in the true sense even to low tensionconsumers by separation of wire and supply may herald a consumer

revolution in power sector as has been witnessed in telecom sector. In

addition, levy of cross subsidy surcharge for open access may be

abolished by amending the Electricity Act.

6. Augmentation of generation equipment manufacturing capacity: Toaugment the generation equipment amending the manufacturing

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capacity BHEL may be bifurcated to create two stand alone

manufacturing companies to bringing in greater competition even in

public sector, In addition, a number of private sector generation

equipment manufacturing companies as JVs between Indian companies

and foreign manufactures currently under way may need to be

encouraged.

7. Incentivising rural electrification: Rural electrification can continue to beincentivized with grants by Government of India based on timely

achievement of targets.

8. Ensuring fuel security: In co-ordination with the ministry of coal,domestic coal linkages for the upcoming generation projects may be

provided without further delay. After clearly arriving at the overall

requirement of imported coal, the respective generation projects should

be advised to go for long term fuel supply contracts, through

international competitive bidding. Similarly in consultation with the

ministry of Petroleum and Natural gas domestic gas linkage should be

provided and for the remaining requirement long term LNG supply

contracts may be entered into through competitive bidding route.

9. Creating matching infrastructure in transmission: Power grid, theNational Transmission Utility and State Transmission Utilities shouldprovide the required transmission infrastructure coterminus with the

commissioning of capacity addition in generation.

10.Thrust on Demand Supply Management (DSM: Use of incandescentbulbs should be banned say from 2013-14 and may be replaced in 2 years

by DISCOMS. DISCOMS/ DSM companies can be incentivized for DSM

measures based on quantifiable and verifiable results.

11.Reduction of AT&C Losses: AT & C losses can be reduced at least 1%every year by DISCOMS by strengthening distribution infrastructure,

installation of capacitors, installation of SCADA, metering at all levels of

distribution infrastructure, deterrent anti-theft measures, installation of

energy efficient pumpsets by farmers by providing them appropriate

incentive by way of partial grants.

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12.Renovation and mordernisation of old plans: Renovation andModernisation and Uprating of existing hydro and thermal power plants

which are at the end of their useful life is a very cost effective strategy for

optimizing availability of power in a relatively shorter period of time,

compared to greenfield projects.

7. Implementation Plan:

1. Privatisation of urban distribution: Privatization of distribution in one millionplus cities in the country can be done in a two year time frame starting from

2011-12 and ending in 2012-13. A panel of transaction advisors can be

provided to States by MOP. Transparent International competitive bidding can

be adopted for privatising urban distribution.

2. Long term fuel linkage: Ministry of coal may be requested to allot coal blocksfor mining only through competitive bidding. Generation projects without

domestic coal linkage shall go for long term imported fuel supply contract

through competitive bidding route. Ministry of P&NG may be requested to

clearly indicate the quantum of gas available for power generation and for the

remaining gas based projects imported LNG may be sourced through long term

supply contracts.

3. Open Access: Open access may be ensured by separating wire and supply at11KV and low tension level as well as abolition of cross subsidy surcharge by

appropriate amendment if required.

4. Make rural distribution more viable: Appointment of franchisees in ruralcircles wherever AT & C losses are more than 25% may be made compulsory by

SERCs.

5. Energy accounting and energy audit: Metering at various levels of distributioninfrastructure and energy accounting at 11 KV level and distribution

transformer level may be made mandatory by SERCs.

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6. DSM measures: Submission of annual action plan of verifiable DSM measuresby DISCOMS may be monitored by SERCs and State Governments and

Government of India may provide appropriate monetary incentives for

achievement of DSM measures by DISCOS/ DSM companies.

7. Remove bottlenecks for laying transmission lines: As transmissioninfrastructure is a public good, Electricity Act may be amended to provide for

right of way to Central and State Transmission utilities as provided in the Indian

Telegraph Act for laying telephone lines.

8. Enhance thermal efficiency: In order to comply with low carbon emission,generation through supercritical technology may be made mandatory for coal

based thermal power stations. Minimum unit size of 660 MW supercritical

technology shall be prescribed to promote energy efficiency.

9. Generation Capacity addition: Taking advantage of the success achieved byGovt. of India in obtaining the consent of the international community in

obtaining fuel and technology from nuclear technology and fuel supplier

countries, the nuclear power capacity addition to be commissioned in next 10

years should be determined and the balance requirement must be met from

other sources. Similarly, Capacity addition form hydroelectric power to be

added in next 10 years should be determined having regard to the feasibility ofenvironmental clearance. Renewable energy like wind energy is not a base load

power since it is seasonal and infirm in nature and hence need to be treated

only as a supplemental source of energy. However, Biomass based power

generation with help decentralising the location of generating units near rural

load centres. Solar power generation given its high cost of generation per unit

will continue to be a marginal source for a long time to come till technological

breakthroughs in photovoltaic material science is achieved. Therefore the

balance requirement has to come from coal based power and gas based power

generation.

10.Resource requirements of the strategy

This strategy instead of requiring resources from the exchequer will provide

resources to the exchequer of state governments since core element of this

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strategy is privatisation of urban circles in the country. Power-grid the central

transmission utility will not require any budgetary support in view of its financial

strength for its investment in capital expenditure by way of interstate 765 KV/ 400

KV and HVDC network. State transmission utilities may require funds which can be

met by borrowings. Generation companies can also meet capital expenditure

requirements by borrowing and IPO listing. Distribution companies may require

substantial funds for upgrading distribution infrastructure. This can be met by PFC

and other FIS. It is rural electrification which will require financial support by way

of grants form GoI and state governments. This can be met by R-APDRP/RGGVY.

11.Power trading/ market

Power trading has evolved over the last decade. This will develop further

with further deepening of open access.

12.Contract Management

Successful execution of projects depends on effective contract

management. This will require fine tuning of tender specification to foster greater

competition and incentivizing timely execution of projects by way of bonus

payments. New vendors also need to be developed by motivating vendors to bid

for bigger contracts.

Bid capacity should be made a mandatory requirement of evaluation of

technical bids so that bidders whose capacities are overstretched are eliminated

from qualifying.

13.Statutory clearances: In consultation with MOEF, shorter time limits may beprescribed for I and II clearances.

14.Electrification in remote areas

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Wherever electrification through conventional line is not feasible due to

forests and other natural barriers, alternative sources like solar power units, micro

hydel units. will be installed for street and home lighting.

15.Transparency: In order to ensure transparency is power sector, competitivebidding will be the only route for awarding any project or contract. Price

discovery through the market by bidding process will be the sole guiding

principle.

16.Spinning reserve / Reserve capacity

10-15% of the total demand will be created as spinning reserve for meeting

contingencies due to breakdown of generating unit or transmission lines or grid

collapse. Pumped storage plants will be taken up whenever feasible. Industries will

be encouraged to install captive plants for meeting any sudden unanticipated

breakdown.

17.Autonomy of Load Dispatch Centres: National load dispatch centres, Regionalload dispatch centres and sate load dispatch centres will be made autonomous

and will continue to provide continuous real time load management.

18.Human Resources Development: Human resources skill up-gradation andtraining will continue to be taken up by National Power Training Institute (NPTI)

and state utilities.

19.Research and Development : R&D will be the focus of Central Power ResearchInstitute (CPRI) and BHEL.

20.Implementation targets: i) Generation - In addition to existing capacity at the

end of 2010, another 1,00,000 MW may have to be added in the 12th

plan

period. This may be broken into year wise targets as below.

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IN MW

2012-13 2013-14 2014-15 2015-2016 2016-2017 Total

20,000 20,000 20,000 20,000 20,000 1,00,000

ii) Capacity Addition by fuel in MW

Hydro 10,000

Nuclear 4,000

Gas 16,000

Coal 70,000

Total 1,00,000

iii) Capital addition by Central PSUs/State Utilities/Private Sector

State PSUS 15,000 MW

Central PSUS 25,000MW

Private sector 60,000MW

-------------------------------------------

1,00,000 MW

Matching transmission and distribution infrastructure will have to be made.

8. Cross departmental and cross functional issues: Power generation based

on various fuels involve different administrative ministries. Very close co-

ordination and consultation is required between MOP and Ministry of coalregarding availability and linkage of domestic coal. Ministry of Railways has an

important role in ensuring the required rail linkage. Ministry of Commerce through

MMTC has been involved in import of coal for NTPC and State Generation utilities.

Similarly close co-ordination is required with the Ministry of Petroleum and

Natural Gas regarding allocation of natural gas as well as gas pipeline

infrastructure. Co-ordination with the Department of Atomic Energy and Nuclear

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Power Corporation will be required in terms of Nuclear power capacity addition,

power evacuation planning for Nuclear power stations and joint ventures of

National Thermal Power Corporation (NTPC) and Nuclear Power Corporation

(NPC). In respect of hydroelectric power projects close co-ordination with MOEF is

required. Co-ordination is required with Ministry of Non-conventional Energy

Sources (MNES) regarding development of biomass, wind and solar based power

generation and their tariffs. In respect of remote habitations for which line based

electrification is not feasible due to forest and environmental constraints,

renewable energy like solar power may have to be provided by MNES in co-

ordination with State Distribution utilities.

9. Linkage between Strategic plan and RFD: This strategic plan has been

prepared with a perspective period of 10 years with indicative target for 12th

plan

(2012-2017). 12th plan capacity addition and capital expenditure in transmission

and distribution have been broken into year-wise targets. Also reduction of AT&C

losses has been proposed as annual targets. These annual targets will form part of

Results Framework Document (RFD)

10. Monitoring and reviewing arrangements: Various projects will be

prioritised in the order of their early commissioning probability and monitored by

MOP, Central Electricity Authority (CEA), State governments and project

authorities. Quantified outcomes like capacity addition in generation,

transmission and distribution infrastructure, Reduction of AT&C losses, financial

performance of power utilities will be monitored by MOP and State Governments.

Number of rural habitations and households electrified will also be monitored. In

addition to MOP and State Governments these outcomes will also be reviewed as

part of regulatory oversight by SERCs periodically as well as part of tariff setting .